Considering the Foreclosure Savings Clause

By June 11, 2020 Real Estate
Considering the Foreclosure Savings Clause

Documents that affect the viability of—or that validate—a loan are likely to contain something called a “savings clause.” Savings clauses are inserted into contracts to ensure that the contract will remain as intact and enforceable as the law will permit, even in the case that some portion of the document is determined unenforceable by a court or otherwise invalidated. These clauses can refer to the entire contract, or to specific provisions within a given contract. They are intended, in other words, to serve as a source of relative certainty—even in the sorts of situations where uncertainty may be at issue. These clauses are also at times referred to as “severability clauses”—reflecting the intent by the parties to request that a court “sever” (cut away or render inert) whatever portion of the contract the law must deem invalid while maintaining the rest of the agreement, and even to indicate particular portions of the contract that they would favor to have severed, as against others (the ones they would most like to “save”).

Naturally, savings clauses are beneficial in some ways, but there will always be scenarios in which such a clause does not solve every issue the parties might hope it will. In part this is because courts sometimes determine even portions of such savings clauses to be invalid or ineffective.

Nonetheless, these clauses may function as evidence of intent in cases that go to court. For example, where a savings clause declares that a lender does not want the interest and calculations payments to accrue at an unlawful rate, a court may more easily sever any provision within the contract that would have had the effect of charging a consumer an unlawful rate. Meanwhile the contract in its other respects would remain intact. As such, savings clauses are beneficial to both loan borrowers and lenders, because they impose a level of certainty even where the law—such as code that defines what may be an unlawful rate—changes after the contract goes into effect. In this way foreclosures—and the abandonment of mortgages—may be more easily avoided.

If you’re either a landlord or a tenant of a property in Phoenix or anywhere else in the state of Arizona, you’ll need an experienced attorney with strong scruples by your side when issues arise. We can help with that. At Provident Law, our real estate attorneys represent parties on either side of real estate and financing transactions, including landlords, tenants, buyers, sellers, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We structure, negotiate and document a variety of real estate and financing transactions, including leases, purchase and sale agreements, loans and development agreements for a variety of commercial and residential projects. Contact us if you’d like us to give you a hand.

Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.